Asia Bond Monitor - September 2016
Yields on bonds in emerging East Asian markets declined as inflationary pressures remained largely muted and persistently low global growth increased the attractiveness of East Asian bonds.
The report notes that yields for 2-year and 10-year local currency government bonds in emerging East Asia were mostly lower between 1 June and 15 August and stock markets in the region recorded gains as well, giving investor sentiment a lift. Over the same period, most East Asian currencies also appreciated against the US dollar, with the Korean won recording the biggest gain of 7.7%. The exception was the Chinese renminbi, which fell 0.9% during the period.
While financial markets are calm, there are rising risks to emerging East Asia’s bond markets. As the sole major developed economy to show growth, the likelihood of a policy rate hike in the United States could prompt capital outflows from the region. Furthermore, the full impact of Brexit has yet to be seen and if the UK’s transition is marred by problems, volatility could return. Lastly, if negative interest rates in the EU and Japan continue, it will reduce monetary authorities’ flexibility in the event of another major financial shock. Negative rates also reduce banking profitability and can exacerbate capital inflows to emerging markets.
About the publication
The Asia Bond Monitor reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. It covers the 10 members of the Association of Southeast Asian Nations plus the People’s Republic of China; Hong Kong, China; and the Republic of Korea.
- Introduction: Emerging East Asian Bond Yields Decline
- Bond Market Developments in the Second Quarter of 2016
- Policy and Regulatory Developments
- Market Summaries